Managing subsidiary knowledge creation: The effect of control mechanisms on subsidiary local embeddedness

Given the importance of local (external) network embeddedness for an MNC subsidiary's ability to create new knowledge, a crucial question is what factors affect this local embeddedness. Despite its obvious relevance, few efforts have been made in the MNC literature to deal with this issue. In this paper, we hypothesize that a subsidiary's local embeddedness is influenced by headquarters' use of different control mechanisms, and that local embeddedness, in turn, is an important antecedent to a subsidiary's level of knowledge creation. The model is tested on a dataset of MNC subsidiaries in Finland and China. The results indicate that MNC headquarters can indeed influence subsidiary local network embeddedness, which in turn enhances subsidiary knowledge creation.